<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Quarter Ended Commission File Number
September 30, 2000 1-13906
BALLANTYNE OF OMAHA, INC.
-------------------------
(Exact name of Registrant as specified in its charter)
Delaware 47-0587703
------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
4350 McKinley Street, Omaha, Nebraska 68112
-------------------------------------------
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code:
(402) 453-4444
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date:
CLASS Outstanding as of October 31, 2000
----------------------------
Common Stock, $.01 par value 12,480,192 shares
<PAGE>
BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Consolidated Financial Statements PAGE
<S> <C>
Consolidated Balance Sheets-September 30, 2000 and December 31, 1999 ............. 2
Consolidated Statements of Operations- Three and Nine Months Ended
September 30, 2000 and 1999 ................................................... 3
Consolidated Statements of Cash Flows- Nine Months Ended
September 30, 2000 and 1999 ................................................... 4
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2000 .......................................... 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ............................................ 11
Item 3. Quantitative and Qualitative Discussion
About Market Risk ............................................................. 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ..................................................... 19
Signatures .................................................................................... 20
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 647,396 $ 857,089
Accounts receivable 12,118,949 15,510,265
Recoverable income taxes 673,761 -
Inventories 24,381,351 26,210,431
Deferred income taxes 1,537,250 1,039,733
Other current assets 19,832 523,841
------------ ------------
Total current assets 39,378,539 44,141,359
Plant and equipment, net 12,854,068 13,319,706
Other assets, net 2,997,580 3,295,165
------------ ------------
Total assets $ 55,230,187 $ 60,756,230
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ - $ 20,000
Notes payable to bank-short term 11,318,000 -
Accounts payable 2,836,938 6,063,078
Accrued expenses 2,997,374 3,437,885
Income taxes payable - 219,499
------------ ------------
Total current liabilities 17,152,312 9,740,462
Deferred income taxes 708,922 735,271
Long-term debt - 48,877
Notes payable to bank - 10,369,000
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 1,000,000 shares, none outstanding - -
Common stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,577,997 shares in 2000
and 14,557,128 shares in 1999 145,780 145,571
Additional paid-in capital 31,715,006 31,663,043
Retained earnings 20,823,621 23,369,460
------------ ------------
52,684,407 55,178,074
Less cost of 2,097,805 common shares in treasury, at cost (15,315,454) (15,315,454)
------------ ------------
Total stockholders' equity 37,368,953 39,862,620
------------ ------------
Total liabilities and stockholders' equity $ 55,230,187 $ 60,756,230
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $10,362,348 $21,623,624 $37,510,448 $63,123,754
Cost of revenues 8,737,884 15,308,309 31,152,278 44,428,722
----------- ----------- ----------- -----------
Gross profit 1,624,464 6,315,315 6,358,170 18,695,032
Operating expenses:
Selling 1,143,117 1,220,993 3,691,293 3,510,470
General and administrative 1,720,778 2,279,029 5,702,456 6,031,586
----------- ----------- ----------- -----------
Total operating expenses 2,863,895 3,500,022 9,393,749 9,542,056
----------- ----------- ----------- -----------
Income (loss) from operations (1,239,431) 2,815,293 (3,035,579) 9,152,976
Interest income 6,942 4,608 15,724 12,602
Interest expense (248,410) (227,755) (796,464) (655,216)
----------- ----------- ----------- -----------
Net interest expense (241,468) (223,147) (780,740) (642,614)
----------- ----------- ----------- -----------
Income (loss) before income taxes (1,480,899) 2,592,146 (3,816,319) 8,510,362
Income tax benefit (expense) 413,962 (947,217) 1,270,480 (3,205,689)
----------- ----------- ----------- -----------
Net income (loss) $(1,066,937) $ 1,644,929 $(2,545,839) $ 5,304,673
=========== =========== =========== ===========
Net income (loss) per share:
Basic $ (0.09) $ 0.13 $ (0.20) $ 0.42
=========== =========== =========== ===========
Diluted $ (0.09) $ 0.13 $ (0.20) $ 0.40
=========== =========== =========== ===========
Weighted average shares:
Basic 12,480,192 12,582,675 12,466,949 12,629,403
=========== =========== =========== ===========
Diluted 12,480,192 13,130,106 12,466,949 13,225,717
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,545,839) $ 5,304,673
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization 2,284,171 2,040,218
Provision for doubtful accounts 543,997 169,000
Gain on sale of fixed assets (28,354) -
Reserve for term loan 511,744 -
Changes in assets and liabilities:
Accounts receivable 2,847,319 1,340,260
Inventories 1,829,080 (4,308,634)
Other current assets (7,735) (473,169)
Accounts payable (3,226,140) 372,292
Accrued expenses (440,511) 757,707
Income taxes (1,417,126) (218,732)
Other assets (62,595) (70,793)
------------ -----------
Net cash provided by
operating activities 288,011 4,912,822
------------ -----------
Cash flows from investing activities:
Proceeds from sales of fixed assets 113,570 -
Capital expenditures (1,543,569) (2,349,695)
------------ -----------
Net cash used in investing activities (1,429,999) (2,349,695)
------------ -----------
Cash flows from financing activities:
Repayments of long-term debt (68,877) -
Net proceeds from note payable to bank 949,000 (1,188,000)
Proceeds from exercise of stock options 52,172 195,937
Purchase of treasury stock - (1,065,908)
------------ -----------
Net cash provided by (used in) financing activities 932,295 (2,057,971)
------------ -----------
Net increase (decrease) in cash and cash equivalents (209,693) 505,156
Cash and cash equivalents at beginning of period 857,089 594,686
------------ -----------
Cash and cash equivalents at end of period $ 647,396 $ 1,099,842
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2000
(Unaudited)
1. Company
Ballantyne of Omaha, Inc., a Delaware corporation ("Ballantyne" or the
"Company"), and its wholly owned subsidiaries, Strong Westrex, Inc., Design &
Manufacturing, Inc., Xenotech Rental Corp. and Xenotech Strong, Inc., design,
develop, manufacture and distribute commercial motion picture projection
equipment, lighting systems, audiovisual products and restaurant equipment.
The Company's products are distributed worldwide through a domestic and
international dealer network and are sold to major movie exhibition companies,
sports arenas, auditoriums, amusement parks, special venues, restaurants,
supermarkets and convenience food stores. Approximately 26% of the Company's
common stock is owned by Canrad of Delaware, Inc. ("Canrad"), which is an
indirect wholly owned subsidiary of ARC International Corporation ("ARC").
In October 2000, an interim receiver was appointed to manage and operate ARC
pursuant to Canadian bankruptcy laws. At this time Ballantyne cannot predict
the impact, if any, this situation will have on the Company's common stock
owned by Canrad.
2. Summary of Significant Accounting Policies
The principal accounting policies upon which the accompanying consolidated
financial statements are based are summarized as follows:
a. Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
include all normal and recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the periods
presented. While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and related notes included in the Company's
latest annual report on Form 10-K.
The results of operations for the three and nine month periods ended
September 30, 2000 are not necessarily indicative of the operating results
for the full year.
b. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include appropriate elements of material, labor and manufacturing
overhead.
c. Plant and Equipment
Significant expenditures for the replacement or expansion of plant and
equipment are capitalized. Depreciation of plant and equipment is provided
over the estimated useful lives of the respective assets using the
straight-line method. Estimated useful lives range from 3 to 20 years.
5
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2000
(Unaudited)
d. Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer. Revenues related to equipment rental and services are recognized as
earned over the terms of the contracts.
e. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
f. Net Income (Loss) Per Common Share
Net income (loss) per share - basic has been computed on the basis of the
weighted average number of shares of common stock outstanding. Net income
(loss) per share - diluted has been computed on the basis of the weighted
average number of shares of common stock outstanding after giving effect to
potential common shares from dilutive stock options. Net income (loss) per
share - diluted includes an increase in the weighted average shares
outstanding for dilutive stock options of 547,431 and 596,314 for the three
and nine months ended September 30, 1999, respectively. Because the Company
reported net losses for the three and nine months ended September 30, 2000,
respectively, the calculation of net loss per share - diluted excludes
potential common shares from stock options as they are anti-dilutive and
would result in a reduction of loss per share. If the Company had reported
net income in 2000, there would have been 13,233 and 113,205 additional
shares in the calculation of net loss per share - diluted.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Raw materials and component parts $17,333,126 $20,041,081
Work in process 3,269,654 3,564,972
Finished goods 3,778,571 2,604,378
----------- -----------
$24,381,351 $26,210,431
=========== ===========
</TABLE>
4. Comprehensive Income
The Company's comprehensive income consists solely of net income (loss). The
Company had no other comprehensive income for the three and nine months ended
September 30, 2000 and 1999.
6
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2000
(Unaudited)
5. Stockholder Rights Plan
On May 26, 2000 the Board of Directors of the Company adopted a Stockholder
Rights Plan (the "Plan"). Under terms of the Plan, which expires June 9,
2010, the Company declared a distribution of one right for each outstanding
share of common stock. The rights become exercisable only if a person or
group (other than certain exempt persons as defined) acquires 15 percent or
more of Ballantyne common stock or announces a tender offer for 15 percent or
more of Ballantyne's common stock. Under certain circumstances, the Plan
allows stockholders, other than the acquiring person or group, to purchase
the Company's common stock at an exercise price of half the market price.
6. Related Party Transaction
On June 24, 2000 the former Chairman of the Board of the Company (the "Former
Chairman") defaulted on a term loan from the Company. The Company is
vigorously pursuing collection of the defaulted loan and expects to receive a
favorable court judgment in the state of Nebraska. However, since the Former
Chairman is a resident of Canada there may be some uncertainty as to whether
a Canadian court would enforce such a judgment. Additionally, no assurances
can be given that the Former Chairman has sufficient assets to comply with
such a judgment. Due to the uncertainty regarding the ultimate recovery of
the note, the Company recorded a charge in the amount of $511,644, which
included unpaid principal and interest at that time. This charge is included
in general and administrative expenses for the nine months ended September
30, 2000.
7. Notes Payable to Bank
As of September 30, 2000, the Company was in default under its $20 million
revolving credit facility with Wells Fargo Bank Nebraska, N.A. ("Wells
Fargo") for failing to maintain an appropriate leverage ratio and failing to
achieve an appropriate interest ratio coverage. In a letter received from
Wells Fargo, the Company was informed that Wells Fargo "has a right to make
demand and declare the Note fully due and payable and exercise remedies
available to the Bank under the Loan Agreement and related documents. Without
waiving any such rights, the Bank is not now making demand nor accelerating
payment of the Note at this time. Rather, the Bank will temporarily defer
taking any action while we consider revised terms under which continuing our
credit relationship would be acceptable." The letter also stated that Wells
Fargo has reduced the aggregate amount outstanding on the credit facility so
that it cannot exceed $11.5 million. The amount outstanding on the credit
facility as of September 30, 2000 was $11,318,000. The Company has classified
the balance outstanding under the credit facility as a current liability as
of September 30, 2000. The Company currently pays interest on the credit
facility equal to the Prime Rate less .75% (8.75% at September 30, 2000). The
majority of the Company's assets secure the credit facility. As of October
31, 2000, approximately $10.5 million was outstanding under the credit
facility. The Company and Wells Fargo are currently negotiating revised terms
to a new revolving credit facility and the Company believes that negotiations
are proceeding in a favorable manner. However, there can be no assurances
that a successful negotiation of a new revolving credit facility will be
achieved.
7
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2000
(Unaudited)
8. Business Segment Information
The Company's operations are conducted principally through three business
segments: Theatre, Lighting and Restaurant. Theatre operations include the
design, manufacture, assembly and sale of motion picture projectors, xenon
lamphouses and power supplies, sound systems and the sale of film handling
equipment and lenses for the theatre exhibition industry. The lighting
segment operations include the sale and rental of follow spotlights,
stationary searchlights and computer operated lighting systems for the motion
picture production, television, live entertainment, theme parks, promotional
lighting and architectural industries. The lighting segment also includes the
sale and rental of audiovisual products. The restaurant segment includes the
design, manufacture, assembly and sale of pressure fryers, smoke ovens and
rotisseries and the sale of seasonings, marinades and barbecue sauces.
The Company allocates resources to business segments and evaluates the
performance of these segments based upon reported segment gross profit.
However, certain key operations of a particular segment are tracked on the
basis of operating profit. There are no significant intersegment sales. All
intersegment transfers are recorded at historical cost.
8
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Nine Months Ended September 30, 2000
(Unaudited)
SUMMARY BY BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- ---------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue
Theatre $ 7,658,270 $18,357,749 $29,039,392 $54,164,533
Lighting
Sales 1,220,669 1,888,690 3,410,033 4,404,753
Rental 1,040,128 887,001 3,661,237 2,815,229
----------- ----------- ----------- -----------
Total lighting 2,260,797 2,775,691 7,071,270 7,219,982
Restaurant 443,281 490,184 1,399,786 1,739,239
----------- ----------- ----------- -----------
Total $10,362,348 $21,623,624 $37,510,448 $63,123,754
Gross profit
Theatre $ 1,283,096 $ 5,636,727 $ 4,727,625 $16,466,419
Lighting
Sales 121,387 561,336 533,395 1,488,794
Rental 115,917 (14,185) 840,698 338,603
----------- ----------- ----------- -----------
Total lighting 237,304 547,151 1,374,093 1,827,397
Restaurant 104,064 131,437 256,452 401,216
----------- ----------- ----------- -----------
Total 1,624,464 6,315,315 6,358,170 18,695,032
Corporate overhead (2,863,895) (3,500,022) (9,393,749) (9,542,056)
----------- ----------- ----------- -----------
Income (loss) from operations (1,239,431) 2,815,293 (3,035,579) 9,152,976
Net interest expense (241,468) (223,147) (780,740) (642,614)
----------- ----------- ----------- -----------
Income (loss) before income taxes $(1,480,899) $ 2,592,146 $(3,816,319) $ 8,510,362
=========== =========== =========== ===========
Expenditures on capital equipment
Theatre $ 363,523 $ 206,476 $ 811,014 $ 1,327,894
Lighting 227,527 152,570 732,555 1,021,801
Restaurant - - - -
---------- ---------- ---------- ---------
Total $ 591,050 $ 359,046 $ 1,543,569 $ 2,349,695
=========== =========== =========== ===========
Depreciation and amortization
Theatre $ 409,791 $ 406,085 $ 1,312,995 $ 1,193,090
Lighting 357,806 317,565 971,176 847,128
Restaurant - - - -
----------- ----------- ----------- ---------
Total $ 767,597 $ 723,650 $ 2,284,171 $ 2,040,218
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
Ballantyne of Omaha, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three and Nine Months Ended September 30, 2000
(Unaudited)
SUMMARY BY BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Identifiable assets
Theatre $42,207,228 $52,100,915
Lighting 11,608,596 7,258,787
Restaurant 1,414,363 1,396,528
----------- -----------
Total $55,230,187 $60,756,230
=========== ===========
</TABLE>
SUMMARY BY GEOGRAPHICAL AREA:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue
United States $ 6,592,122 $17,290,744 $25,929,380 $52,507,724
Canada 651,393 2,013,109 2,849,053 3,748,906
Asia 1,618,696 970,088 3,884,294 2,650,058
Mexico 62,275 431,450 637,614 957,978
Europe 1,109,606 665,458 3,300,679 2,703,211
Other 328,256 252,775 909,428 555,877
----------- ----------- ----------- -----------
Total $10,362,348 $21,623,624 $37,510,448 $63,123,754
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Identifiable assets
United States $54,331,260 $59,912,380
Asia 898,927 843,850
----------- -----------
Total $55,230,187 $60,756,230
=========== ===========
</TABLE>
Net revenues by business segment are to unaffiliated customers. Net sales by
geographical area are based on destination of sales. Identifiable assets by
geographical area are based on location of facilities.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in
this document. Management's Discussion and Analysis contains forward-looking
statements that involve risks and uncertainties, including but not limited
to, quarterly fluctuations in results; customer demand for the Company's
products; the development of new technology for alternate means of motion
picture presentation; domestic and international economic conditions; the
management of growth; and other risks detailed from time to time in the
Company's other Securities and Exchange Commission filings. Actual results
may differ materially from management expectations.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES
CONSOLIDATED
Net revenues for the three months ended September 30, 2000 decreased $11.2
million to $10.4 million from $21.6 million for the three months ended
September 30, 1999. The decrease mainly resulted from lower domestic sales
where revenue decreased $10.7 million or 61.9% to $6.6 million in 2000 from
$17.3 million in 1999. As discussed in further detail below, the majority of
the decrease relates to substantially lower sales of theatre products.
Foreign sales (most of which were theatre segment sales) also decreased $0.5
million or 13.0% from $4.3 million in 1999 to $3.8 million in 2000 due to
lower sales to Canada. The following table shows comparative net revenues of
theatre, lighting and restaurant products for the respective periods:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Theatre $ 7,658,270 $18,357,749
Lighting 2,260,797 2,775,691
Restaurant 443,281 490,184
----------- ------------
Total net revenues $10,362,348 $21,623,624
============ ============
</TABLE>
THEATRE SEGMENT
As stated above, the decrease in consolidated net revenues primarily related to
lower sales of theatre products which decreased $10.7 million or 58.3% from
$18.4 million in 1999 to $7.7 million in 2000. In particular, sales of
projection equipment decreased $9.2 million from $14.9 million in 1999 to $5.7
million in 2000. This decrease resulted from a sharp downturn in the
construction of new theatres in the United States as a large percentage of the
Company's customers are feeling the effects of over construction in certain
areas of the country, rising interest rates and lower attendance.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
All of these items aggregated have contributed to poor operating results of
theatre exhibition companies in general, which has in turn curtailed the
theatre construction. In particular, some theatre exhibition companies have
either filed for or are considering protection under federal bankruptcy laws.
To date, the Company has only been slightly impacted by these bankruptcies,
however, the bankruptcy of one or more of the Company's major customers could
have a material adverse effect on the Company's business, financial condition
and results of operations. To account for this downturn, the Company is
currently making changes designed to bring expenses in line with the lower
revenues. To that extent, the Company implemented a 7% pay reduction and a
wage freeze for salaried personnel in its Omaha facility in October 2000.
Additionally, the Company has reduced total personnel at the Omaha facility
by 10% subsequent to September 30, 2000. Foreign sales of theatre products
were also lower during the quarter and mainly related to lower sales to
Canada where sales decreased $1.4 million compared to the third quarter in
1999. However, sales to Asia and Europe were higher by a combined $1.1
million compared to the same period in 1999.
The Company also experienced substantially lower sales of lenses, which
decreased approximately $1.0 million from $1.4 million in 1999 to $0.4
million in 2000. This decrease is related to the lower projection equipment
sales but lens sales do not always fluctuate with the volume of projection
equipment sold as the lens can be sold individually.
Theatre replacement parts also decreased during the quarter from $2.1 million
in 1999 to $1.6 million in 2000. Replacement part sales are not directly
related to the volume of projection equipment sold but are more a reflection
of the needs of customers that have previously purchased projection equipment
from the Company.
LIGHTING SEGMENT
Sales and rentals in the lighting segment decreased $0.5 million from $2.8
million in 1999 to $2.3 million in 2000. The decrease mainly relates to sales
and rentals generated from the Company's entertainment, promotional and
architectural lighting products which decreased $0.6 million to $0.9 million
in 2000 from $1.5 million in 1999. In particular, sales and rentals from the
Company's rental office in North Hollywood continued to be weak as it has
been dealing with an actors strike and a weakened motion picture production
industry in the Los Angeles area. The Company believes that revenue will rise
now that the strike is settled and industry conditions improve. Sales of
spotlight and audiovisual products were relatively flat from quarter to
quarter.
RESTAURANT SEGMENT
Restaurant sales remained flat at approximately $0.4 million for the 1999 and
2000 quarters.
GROSS PROFIT
Overall, consolidated gross profit decreased $4.7 million to $1.6 million in
2000 from $6.3 million in 1999. The decrease relates to the theatre segment
where gross profit decreased $4.4 million compared to 1999. Additionally,
gross profit in the theatre segment as a percentage of net revenues ("gross
margin") decreased from 30.7% to 16.8% during the third quarter of 2000.
Contributing to the lower gross profit were substantially lower theatre
segment revenues that resulted in lost gross profit of approximately $3.1
million. Contributing to both the lower gross profit and gross margin
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
were negative manufacturing variances created by less volume through the
Company's manufacturing facilities which resulted in the level of sales not
being sufficient to fully absorb the Company's manufacturing overhead.
Additionally, the amount of sales coupled with current inventory levels have
caused plant labor utilization to drop considerably. The Company is in the
process of reducing its cost structure, lowering inventory and bringing
custom manufacturing work into its plants to increase labor utilization and
absorb more manufacturing overhead. As discussed in further detail earlier,
the Company has reduced personnel and implemented certain wage reductions and
freezes subsequent to September 30, 2000.
Gross profit in the lighting segment decreased by $0.3 million during the
quarter. The decrease was mainly due to margins on spotlight sales, which was
related to the manufacturing inefficiencies discussed earlier.
Restaurant gross profit and margins were slightly lower due to the same
manufacturing inefficiencies.
OPERATING EXPENSES
Operating expenses in the third quarter of 2000 decreased approximately $0.6
million from the same quarter a year ago but as a percentage of net revenues
increased to 27.6% in 2000 from 16.2% in 1999. The increase in operating
expenses as a percentage of revenues was mainly due to lower sales volume in
the theatre segment as a large percentage of the Company's operating expenses
are fixed in the short-term. The Company is actively taking steps to align
these expenses with projected revenue. As discussed in further detail
earlier, the Company has reduced personnel and implemented certain wage
reductions and freezes subsequent to September 30, 2000.
OTHER FINANCIAL ITEMS
Net interest expense was approximately $0.2 million for the 1999 and 2000
quarters due to similar borrowings on the Company's line of credit.
The Company's effective tax rate for the quarter was 28.0% compared to 36.5%
in 1999. The decline in the tax rate resulted from the differing impact of
permanent differences on the loss for the quarter compared to income a year
ago.
For the reasons outlined above, the Company experienced a net loss for the
quarter of approximately $1.1 million compared to net income of $1.6 million
in the third quarter of 1999. This translated into a net loss per share -
basic and diluted of $0.09 per share in 2000 compared to net income per share
- basic and diluted of $0.13 per share in 1999.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES
CONSOLIDATED
Net revenues for the nine months ended September 30, 2000 decreased $25.6
million to $37.5 million from $63.1 million for the nine months ended
September 30, 1999. The decrease mainly resulted from lower domestic
revenues, which decreased $26.6 million or 50.6% to $25.9 million in 2000
from $52.5 million in 1999. As discussed in further detail below, the
majority of the decrease relates to substantially lower sales of theatre
products. Foreign sales (most of which were theatre segment sales) increased
approximately $1.0 million or 9.0% from $10.6 million in 1999 to $11.6
million in 2000 due to higher sales in Asia and Europe.
The following table shows comparative net revenues of theatre, lighting and
restaurant products for the respective periods:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Theatre $29,039,392 $54,164,533
Lighting 7,071,270 7,219,982
Restaurant 1,399,786 1,739,239
----------- -----------
Total net revenues $37,510,448 $63,123,754
=========== ===========
</TABLE>
THEATRE SEGMENT
As stated above, the decrease in consolidated net revenues primarily related
to lower sales of theatre products, which decreased $25.2 million or 46.4%
from $54.2 million in 1999 to $29.0 million in 2000. In particular, sales of
projection equipment decreased $21.9 million from $43.8 million in 1999 to
$21.9 million in 2000. This decrease resulted from a sharp downturn in the
construction of new theatres in the United States as a large percentage of
the Company's customers are feeling the effects of over construction in
certain areas of the country, rising interest rates and lower theatre
attendance. All of these items aggregated together have contributed to poor
operating results of theatre exhibition companies in general, which has in
turn curtailed the theatre construction. In particular, some theatre
exhibition companies have either filed for or are considering protection
under federal bankruptcy laws. To date, the Company has only been slightly
impacted by these bankruptcies, however, the bankruptcy of one or more of the
Company's major customers could have a material adverse effect on the
Company's business, financial condition and results of operations. To account
for this downturn, the Company is currently making changes designed to bring
expenses in line with the lower revenues. To that extent, the Company
implemented a 7% pay reduction and a wage freeze for salaried personnel in
its Omaha facility in October of 2000. Additionally, the Company has reduced
total personnel at the Omaha facility by 10% subsequent to September 30, 2000.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company also experienced softer sales of lenses, which decreased
approximately $3.0 million to $1.4 million compared to $4.4 million in 1999.
This decrease is related to the lower projection equipment sales but lens sales
do not always fluctuate with the volume of projection equipment sold as the lens
can be sold individually.
Theatre replacement parts also decreased during the quarter from $6.0 million in
1999 to $5.7 million in 2000. Replacement part sales are not directly related to
the volume of projection equipment sold but are more a reflection of the needs
of current customers that have previously purchased projection equipment from
the Company.
LIGHTING SEGMENT
Overall, sales and rentals in the lighting segment were relatively flat at
$7.1 million in 2000 compared to $7.2 million in 1999. However, the makeup of
the revenues changed to a great extent. Audiovisual revenues increased from
$2.0 million in 1999 to $3.1 million in 2000 due to the growth in sales and
rentals out of the Company's offices in Orlando and Fort Lauderdale, Florida.
Offsetting the increase in audiovisual revenues were lower revenues from
sales and rentals generated from the Company's entertainment, promotional and
architectural lighting products which decreased approximately $1.0 million to
$2.6 million in 2000 from $3.6 million in 1999. In particular sales and
rentals from the Company's rental office in North Hollywood continued to be
weak as it has been dealing with an actors strike and a weakened motion
picture production industry in the Los Angeles area. The Company believes
that revenue will rise now that the strike is settled. Spotlight sales were
lower by approximately $0.2 million over last year.
RESTAURANT SEGMENT
Restaurant sales were lower by $0.4 million due to lower sales of pressure
fryers and cookers.
GROSS PROFIT
Overall, consolidated gross profit decreased $12.3 million to $6.4 million in
2000 from $18.7 million in 1999. The decrease relates to the theatre segment
where gross profit decreased $11.7 million compared to 1999. Additionally,
gross profit in the theatre segment as a percentage of net revenues ("gross
margin") decreased from 30.4% to 16.3% during the nine months ended September
30, 2000. Contributing to the lower gross profit were lower theatre revenues
that resulted in lost gross profit of approximately $7.3 million.
Contributing to both the lower gross profit and gross margin was negative
manufacturing variances created by less volume through the Company's
manufacturing facilities. This has resulted in the level of sales not being
sufficient to fully absorb the Company's manufacturing overhead.
Additionally, the amount of sales coupled with current inventory levels has
caused plant labor utilization to drop considerably. The Company is in the
process of reducing its cost structure, lowering inventory and bringing
custom manufacturing work into its plants to increase labor utilization and
absorb more manufacturing overhead. As discussed in further detail earlier,
the Company has reduced personnel and implemented certain wage reductions and
freezes subsequent to September 30, 2000.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Gross profit in the lighting segment decreased by $0.5 million during the
quarter. The decrease was mainly due to margins on spotlight sales, which was
related to the manufacturing inefficiencies discussed earlier.
Restaurant gross profit and margins were lower due to the same manufacturing
inefficiencies.
OPERATING EXPENSES
Operating expenses for the year decreased approximately $0.1 million from the
same period a year ago but as a percentage of net revenues, increased to
25.0% for the 2000 period from 15.1% for the 1999 period. Included in the
2000 expenses was a reserve of approximately $0.5 million taken for a term
loan in default by the former chairman of the Board. While the Company is
vigorously pursuing collection of the defaulted loan, the Company was not
able to predict its outcome with any reasonable degree of certainty and
accordingly recorded the reserve. Additionally, during the year the Company
incurred approximately $0.5 million of personnel reduction charges and also
reserved for approximately $0.5 million of receivables related to specific
customers who have been financially impacted by the current state of the
theatre and lighting industries. The Company is actively taking steps to
align these expenses with projected revenue. As discussed in further detail
earlier, the Company has reduced personnel and implemented certain wage
reductions and freezes subsequent to September 30, 2000.
OTHER FINANCIAL ITEMS
Net interest expense was approximately $0.8 million in 2000 compared to $0.6
million in 1999 due to higher average borrowings and a higher interest rate
on the Company's line of credit.
The Company's effective tax rate year-to-date was 33.3% compared to 37.7% a
year ago. The decline in the tax rate resulted from the differing impact of
permanent differences on the loss for the year compared to income a year ago.
For the reasons outlined above, the Company experienced a net loss for the
year of approximately $2.5 million compared to net income of $5.3 million in
1999. This translated into a net loss per share - basic and diluted of $0.20
per share in 2000 compared to net income per share - basic of $0.42 per share
and net income per share- diluted of $0.40 per share in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company was in default under its $20 million
revolving credit facility with Wells Fargo Bank Nebraska, N.A. ("Wells
Fargo") for failing to maintain an appropriate leverage ratio and failing to
achieve an appropriate interest ratio coverage. In a letter received from
Wells Fargo, the Company has been informed that Wells Fargo "has a right to
make demand and declare the Note fully due and payable and exercise remedies
available to the Bank under the Loan Agreement and related documents. Without
waiving any such rights, the Bank is not now making demand nor accelerating
payment of the Note at this time. Rather, the Bank will temporarily defer
taking any action while we consider revised terms under which continuing our
credit relationship would be acceptable." The letter also stated that Wells
Fargo has reduced the aggregate amount outstanding on the credit facility so
that it cannot exceed $11.5 million. The amount outstanding on the credit
facility as of September 30, 2000 was $11,318,000. The Company has classified
the balance outstanding under the credit facility as a current
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
liability as of September 30, 2000. The Company currently pays interest on
the credit facility equal to the Prime Rate less .75% (8.75% at September 30,
2000). The majority of the Company's assets secure the credit facility. As of
October 31, 2000, approximately $10.5 million was outstanding under the
credit facility. The Company and Wells Fargo are currently negotiating
revised terms to a new revolving credit facility and the Company believes
that negotiations are proceeding in a favorable manner. However, there can be
no assurances that a successful negotiation of a new revolving credit
facility will be achieved.
Historically, the Company has funded its working capital requirements through
cash flow generated by its operations and use of its line of credit. The
Company anticipates that internally generated funds and borrowings available
under the Company's line of credit will be sufficient to meet its working
capital needs and planned 2001 capital expenditures unless it is unable to
negotiate adequate terms under a new credit facility. See the prior paragraph
for further discussion of the Company's revolving credit facility. In the
event that digital projection becomes a commercially viable product, the
Company will need to raise additional funds in order to fully develop such a
product. If adequate funds are not available on acceptable terms, the Company
may be unable to take advantage of future digital projection opportunities or
respond to competitive pressures any of which could have a material adverse
effect on the Company's business, financial condition and operating results.
See discussion under the heading "Digital Projection Update" on page 18 for a
further discussion of digital projection.
Net cash provided by operating activities was $0.3 million in 2000 compared
to cash provided by operating activities of $4.9 million in 1999. The
decrease in operating cash flow was mainly due to lower operating income
coupled with a decrease in accounts payable during 2000. The decrease in
accounts payables relates to a substantial reduction in the purchase of raw
materials during 2000 while paying for inventory purchased in late 1999 on
open account.
Net cash used in investing activities was $1.4 million compared to $2.3
million a year ago. Investing activities in both periods mainly reflect
capital expenditures, which have decreased due to fewer purchases of
entertainment lighting equipment.
Net cash provided by financing activities was $0.9 million in 2000 compared
to cash used in financing activities of $2.1 million in 1999. The change from
year to year represents proceeds from the Company's line of credit this year
and due to the purchase of $1.1 million of treasury stock a year ago.
The Company does not engage in any hedging activities, including
currency-hedging activities, in connection with its foreign operations and
sales. To date, all of the Company's international sales have been
denominated in U.S. dollars, exclusive of Strong Westrex, Inc. sales, which
are denominated in Hong Kong dollars.
SEASONALITY
Generally, the Company's business exhibits a moderate level of seasonality as
sales of theatre products typically increase during the third and fourth
quarters. The Company believes that such increased sales reflect seasonal
increases in the construction of new motion picture screens in anticipation
of the holiday movie season.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INFLATION
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net revenues or
profitability. Historically, the Company has been able to offset any
inflationary effects by either increasing prices or improving cost
efficiencies.
YEAR 2000
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000.
Additionally, the Company is not currently aware of any significant year 2000
or similar problems that have arisen for its customers or suppliers. The
Company expended an immaterial amount to ready itself for the year 2000.
Management does not expect year 2000 issues to have a material adverse effect
on the Company's operations or financial results in 2000.
DIGITAL CINEMA UPDATE
The current motion picture exhibition industry is based on the use of film
technology to deliver motion pictures to the public. However, in the last few
years, there have been innovations in technology to show motion pictures
digitally. While most industry experts anticipate that widespread demand for
digital projection is a few years away, the Company is weighing a number of
alternatives. The Company has started developing a proprietary digital
projector by partnering with Lumavision Display, Inc., however, that is only
one of the alternatives that the Company is currently considering. The
Company has committed initial funding to the project and approximately $0.6
million was expensed to cost of revenues during 2000. Along with the advent
of digital technology, the Company will encounter new and different
competitors some of which may have substantially greater resources than the
Company. While the Company believes it can overcome these obstacles, there
can be no assurance the Company will participate in the digital cinema
industry and this result could have a material adverse effect on the
Company's business, financial condition and operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivatives and hedging. It requires that all
derivatives be recognized as either assets or liabilities at fair value and
establish specific criteria for the use of hedging accounting. SFAS No. 137
deferred the effective date of SFAS No. 133, accordingly the Company's
required adoption date is July 1, 2000. SFAS No. 133 is not to be applied
retroactively to financial statements of prior periods and as of September
30, 2000 the Company had no derivatives or hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin Number 101, ("SAB 101") which summarizes certain of the
staff's view in applying generally accepted accounting principles to revenue
recognition in financial statements. The effective date of SAB 101 for the
Company is the quarter ended December 31, 2000. The Company believes that the
adoption of SAB 101 will not have a significant effect on its future
financial statements and results of operations.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has evaluated its exposure to fluctuation in the foreign currency
environment and has concluded that its exposure to fluctuation in the foreign
currency environment would not be material to the consolidated financial
statements. The Company has also evaluated its exposure to fluctuations in
interest rates and the corresponding effect on the rate of interest on the
Company's floating rate line of credit. Assuming amounts remain outstanding
on the line of credit, increases in interest rates would increase interest
expense. At current amounts outstanding on the line of credit, a one percent
increase in the interest rate would increase yearly interest expense by
approximately $113,000. The Company has not historically and is not currently
using derivative instruments to manage the above risks.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11 Computation of net income (loss) per share
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K filed for the three months ended September 30, 2000
No reports on Form 8-K were filed during the three months ended
September 30, 2000.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALLANTYNE OF OMAHA, INC.
By: /s/ John Wilmers By: /s/ Brad French
----------------------------------- ----------------------------------
John Wilmers, President, Brad French, Secretary, Treasurer,
Chief Executive Officer and Director and Chief Financial Officer
Date: November 14, 2000 Date: November 14, 2000
20
